* Sources say decision due to valuation concerns
* Say Turkish state bank Ziraat Bank interested in Asya
* Asya hit by deposit withdrawals (Adds share price reaction)
By Seda Sezer, Ebru Tuncay and David French
ISTANBUL/DUBAI, July 2 Qatar Islamic Bank (QIB) and Turkey's Bank Asya have ended exclusive talks over QIB acquiring a stake in the Turkish lender, four sources close to the matter told Reuters, with valuation concerns said to be behind the decision.
Turkish state bank Ziraat Bank may now be the most likely partner for Bank Asya but the two banks have not officially begun talks, three of the sources said.
Bank Asya shares slumped 9.9 percent to 1.36 lira, their lowest since April 1, by 1304 GMT, on the news that Asya was no longer holding exclusive talks with QIB, an analyst, who did not wish to be identified, said.
Islamic lender Bank Asya has been under pressure to sell assets, the sources said, after being hit by a power struggle since late last year between Turkish Prime Minister Tayyip Erdogan and U.S.-based Islamic cleric Fethullah Gulen, leading major investors sympathetic to Erdogan to withdraw deposits.
"Talks with QIB ended. Bank Asya is going through tough times since Dec. 17. They are in talks with Ziraat," one source close to the deal said. It was not clear what size stake had been under discussion.
The Qatari lender didn't respond to a request for comment. Bank Asya and Ziraat declined to comment.
The talks with QIB faltered after the banks failed to agree a price, the sources said. Turkish banks are a natural target as Qatari banks expand overseas but price has become a highly sensitive issue after the state's second-biggest bank by assets, Commercial Bank of Qatar, was seen overpaying last year to acquire a 70.8 percent stake in Turkey's Alternatifbank .
It paid two-times book value, much higher than what Qatari banks previously had offered to pay for Turkish assets.
"They (QIB) couldn't be seen to be overpaying for it as it's a very sensitive issue in Qatar right now, especially for a Turkish bank asset," said a senior Qatari banker with knowledge of the matter.
Bank Asya said in March that it had started talks on a strategic partnership with QIB and planned to complete the process soon.
Asya's founders include sympathisers of Gulen, a former ally of Erdogan who has become his bitter rival, and state-owned companies and institutional depositors loyal to Erdogan have withdrawn 4 billion lira ($1.8 billion), or some 20 percent of the bank's total deposits, according to Turkish media reports earlier this year.
Media speculated the withdrawals were part of an orchestrated backlash by the government following a graft probe against Erdogan, which the premier blamed on Gulen, and which at the time posed one of the biggest challenges to Erdogan's 11-year rule.
Bank Asya's Chief Executive, Ahmet Beyaz, said in January that the lender had weathered the mass deposit withdrawals and was not at risk. The government has declined to comment. But the sources said the bank needs to sell assets.
Its performance has been affected by the withdrawls, sources said, with one of them adding that Bank Asya needed to do a deal "urgently" to bring in a partner.
Three state-run Turkish banks, including Ziraat, have been working on setting up Islamic banks over the past year. ($1 = 2.1260 Turkish liras) (Additional reporting by Pamela Barbaglia in London; Editing by Humeyra Pamuk and Susan Fenton)